Holiday boats elude Value Added Tax (VAT), netting Finance Ministry EUR 3.6 million in recovered funds.
Three Point Six Million Euros Operation: Investigating Luxury Yacht Tax Evasion
The Financial Police of the Imperia Provincial Command of the Guardia di Finanza has launched a major operation, costing €3.6 million, targeting non-resident businesses involved in the short-term rental of pleasure yachts flying flags from tax-friendly nations. The primary objective is to ascertain the correct taxable base for Value-Added Tax (VAT) resulting from charter agreements.
Catering to a Favorable Regime
Many of these businesses appear to be exploiting a regime that grants them a significant VAT advantage, applying tax only on 30% of the agreed rental fee. However, this lenient taxation applies when it's indisputable that the yacht remains outside European Union (EU) waters during the lease. The taxpayer is expected to estimate the time spent outside EU waters relative to the total duration of the lease, referencing the contract and all available supporting documents. Only if robust proof is difficult to obtain does the taxpayer have the option of estimating the proportion of out-of-EU navigation using prescribed percentages provided by the Revenue Agency. Surprisingly, almost all businesses seemed to take this flexible approach.
Trailing the Routes
Collaboration with the Operational Naval Command of the Guardia di Finanza in Pratica di Mare enabled the examination of data recorded by the Automatic Identification System (AIS) tracking systems installed on board the yachts. The Financial Police were able to compare the actual routes with contractual documentation, thus meticulously reconstructing the portion of travel taking place within EU waters. This detailed analysis empowered them to accurately calculate the VAT taxable base.
Unaccounted VAT Commitments
The resulting investigation exposed substantial unpaid VAT, with the companies under question now facing tax adjustments. This case underscores the importance of inter-departmental collaboration and innovative technological control tools in combating evasion practices prevalent within the luxury and yachting sectors.
Insights
In the world of yacht charters, VAT rules are determined predominantly by the charter location and the boat's flag status. EU-flagged yachts are generally subject to VAT within EU waters, whereas non-EU flagged boats may temporarily avoid VAT under certain conditions. The AIS tracking system, while primarily employed for safety, could indirectly support tax compliance by monitoring yacht movements and ensuring they align with charter activities. However, specific methods for using AIS to enforce VAT compliance on pleasure boats are not extensively detailed. Ongoing legislative changes, such as tax reforms in countries like Greece, may impact VAT regulations for short-term rentals indirectly.
Sources: 1, 2, 3, 4, 5
The average VAT savings, due to the lenient taxation applied to businesses involved in the short-term rental of pleasure yachts, can reach significant figures. Given the lack of robust proof, many companies have been relying on prescribed percentages provided by the Revenue Agency to estimate the proportion of out-of-EU navigation, leading to concerns about underreported VAT commitments in the finance sector.
The integration of data from the Automatic Identification System (AIS) tracking systems on board the yachts has allowed for a closer examination of businesses' financial activities, thereby ensuring a more accurate calculation of the VAT taxable base and combating tax evasion practices within the luxury yachting business.
